1971 (12) TMI 2 - HC - Wealth-tax

Whether Tribunal was right in holding that the unpaid income-tax liability was allowable as a debt within the provisions of the Wealth-tax Act Held yes but the assessee became liable to pay the installments as and when they fell due

Summary

Issues Involved:

1. Whether the unpaid income-tax liability was allowable as a debt within the provisions of the Wealth-tax Act.
2. Whether the amount of tax which the assessee asserts to be due by him on the valuation date for the assessment year 1957-58 was not at all due on the valuation date.
3. Whether the total amount of tax had not been paid by the assessee for a period of more than twelve months on the valuation date, no deduction could be made.

Issue-wise Detailed Analysis:

1. Allowability of Unpaid Income-tax Liability as a Debt:

The Tribunal was tasked with determining whether the unpaid income-tax liability was allowable as a debt within the provisions of the Wealth-tax Act. The assessment years in question were 1957-58, 1959-60, 1960-61, 1961-62, and 1962-63. The assessee, who had concealed income during the war, entered into a settlement under section 34(1B) of the Income-tax Act, 1922. The settlement, signed on January 17, 1957, fixed the concealed income at Rs. 1,33,57,833, with an income-tax liability of Rs. 31,92,353 payable in five instalments. The Central Board of Revenue approved the settlement on May 1, 1957. The assessee sought to deduct one-third of Rs. 31,92,353 from his gross wealth as a debt owed, which was initially resisted by the department but allowed by the Tribunal.

2. Existence of Liability on the Valuation Date for 1957-58:

Dr. R. R. Misra, representing the department, argued that the tax liability did not exist on the valuation date for the assessment year 1957-58, as the Central Board of Revenue's order was passed on May 1, 1957. However, the Tribunal found that the terms of the settlement were accepted by the assessee on January 17, 1957, thus establishing the liability before the valuation date. The Tribunal concluded that the income-tax liability was ascertainable on January 17, 1957, and therefore existed on the valuation date of March 31, 1957.

3. Deduction of Tax Not Paid for More Than Twelve Months:

The second issue revolved around whether the unpaid tax for more than twelve months on the valuation date could be deducted. The Tribunal referred to clause (iii) of section 2(m) of the Wealth-tax Act, which excludes from "net wealth" the amount of tax outstanding for more than twelve months on the valuation date. The Tribunal interpreted the word "outstanding" to mean an amount due for payment but not paid. They concluded that the instalments payable under the settlement were not outstanding until they fell due, and thus, the unpaid instalments did not disqualify the assessee from deducting the debt from his net wealth.

The Tribunal emphasized that the primary object of section 2(m) was to find the real net wealth of the assessee by deducting debts owed. They reasoned that disallowing the deduction of the debt because the entire amount was not paid within twelve months would give an unreal estimate of the assessee's net wealth. The Tribunal's interpretation was supported by the Calcutta High Court's decision in Commissioner of Wealth-tax v. Banarashi Prasad Kedia, which held that an amount not due for payment before the valuation date could not be considered outstanding.

Conclusion:

The Tribunal answered the question in the affirmative, allowing the unpaid income-tax liability as a debt within the provisions of the Wealth-tax Act. The assessee was entitled to deduct the balance of the amount due under the settlement in calculating his net wealth. The Tribunal awarded costs to the assessee, assessed at Rs. 200.